"The financial crisis has affected the steel industry as weak demand
negatively impacted prices for finished products, hurting in particular
those companies that sold largely on spot contracts."

Formally educated as an economist and trained in town planning, Roger Manser worked as a commodities’ journalist for over 30 years. He has written specifically about the steel industry since 1994. In 2001, he co-founded Steel Business Briefing (SBB) and has held roles as both a writer and editor.

Automotive IQ: What kinds of challenges are currently facing the steel industry and could you give us some insight into how the industry is coping with the current global financial crisis?

The main challenges facing the steel industry today are overcapacity, high raw material/energy costs and price volatility.

Taking these in order, the industry has over- invested in new capacity for several reasons:
• Investments in technology upgrades are often accompanied by capacity increases.
• Availability of relatively cheap capital for new investment in countries such as China.
• China, Russia and India are large, with high internal transport costs, meaning mills supplying local markets can survive.
• Producers in Russia, India and Ukraine in particular have low production costs (due to the availability of local raw materials); this is also partly true for Turkey.
• The open international market means new mills can often export at least some of their excess steel production to other regions at low prices.
On the other side of the equation, weak demand, especially in Europe, but also in Japan, CIS, and even the USA have meant slower growth than most mills anticipated. Closures in Europe, and to a lesser extent elsewhere have partially helped cut overcapacity, but to date they have been insufficient.

High raw material/energy costs are due to the fact that the main energy source for a blast furnace is coking coal/coke. Iron ore costs are also relatively high and power costs are rising. Some countries gain from power subsidies. Price volatility – balancing raw material costs with sales prices - has also hurt steel producers, most of whom had long term raw material supply contracts.

The financial crisis affected the industry with weak demand negatively impacting prices for finished steels, hurting in particular those companies that sold largely on spot contracts. At the same time (2008/9), Beijing initiated a large fiscal stimulus (to avoid a domestic crisis), and this involved relatively high levels of investment in infrastructure, in turn requiring significant volumes of imported iron ore (e.g. from Brazil and Australia), and hence higher spot/contract iron ore prices.

Automotive IQ: What hurdles do you see for the medium and long term?

I see challenges arising from global climate change and the need to limit CO2 emissions from the steel industry, and for lighter vehicles to meet lower tail pipe limits. Therefore, alternative materials will challenge the industry, though on the basis of life cycle analysis, steel has lower emissions than for example, aluminium. There may be higher energy costs e.g. from buying CO2 permits, investment in recyclables, and thus concerns over steel industry’s "carbon leakage" (though this may be exaggerated). Additionally, new steel production technologies are likely to be costly.

Automotive IQ: Are there any innovations that might affect the cost of producing and/or utilizing steel that potential customers should be aware of?

One innovation with potential is thin slab/thin strip casting, which could cut the cost of quality rolled steel, in due course. New alloys developed through the World Auto Steel programmes also have the potential to reduce mass and improve the rigidity of a steel body structure. Another innovation is aluminium and steel jointing (e.g. for inner door panels) to help reduce mass.

Automotive IQ: There is discussion of a potential Free Trade Agreement between the U.S. and the European Union. Do you believe that this could have an effect on steel prices? Could this potentially benefit the industry? Are there any other regulatory developments that could have an impact on the industry?

In my opinion a US/EU agreement is unlikely to impact steel prices. Russia entering into the WTO may have more impact as it is one of the lowest cost producers in the world so this is a development to watch. Also, border agreements on CO2 could impact international trade in steel products in due course.

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